At the ITC 2022 InsurTech Conference, Embedded Insurance was everywhere. Industry experts predict that 40% of insurance will be embedded in the next 10 to 20 years. Amidst the noise, excitement, and hype, success stories are few and far between – Its potential remains largely untapped.
Hippo is a notable InsurTech success for embedded insurance. It reported that 50% of homeowner insurance sales were from embedded insurance partners such as mortgage originators and builders. On the Carrier front, State Farm’s Smart Home Insurance program, in partnership with Ting, reports over 132K customers with 20K monthly installations in the last quarter.
A closer look at these two examples is required to understand the contributing factors to their success. The key takeaway is that Embedded Insurance is much more than a simple ‘bolt-on’ insurance cover to the primary product at the point of sale. Rather it requires a conscious effort to design and develop an architecture that delivers an integrated experience regardless of the distribution partners.
Here are four aspects for every CxO to consider:
1. Seamless CX across primary product purchase and insurance add-on
An integrated customer experience creates a seamless and convenient purchase journey for the customer. The user perceives it as a single transaction associated with the primary product purchase and is transparent about the fact that multiple parties are involved. In a true embedded experience, the user values the insurance cover as an integral component of the product or service being purchased.
Carriers and InsurTechs need to work closely with their distribution partners to design this integrated experience. This allows InsurTechs to take advantage of additional data available with the distribution partner to personalize the coverage and premiums. A UI architecture that can be easily customized to the partner branding with service components that can be activated or disabled as needed is crucial for rapid deployment and achieving scale.
When InsurTechs design embedded insurance CX ground up rather than as a ‘bolt-on’ coverage, they unlock new market opportunities. For example, State Farm uses Ting’s Smart Home application to send monthly updates to homeowners and optimizes coverage based on the safety record. It allows State Farm to regularly engage with the users and cultivate a relationship of trust, compared to the once-a-year renewal interaction.
- Flexible Architecture that’s based on Serverless Cloud-Native Technology
The importance of providing a unified experience while offering embedded insurance needs to be reinforced and be an essential design parameter for the Engineering team. As InsurTechs work with multiple distribution partners who employ different tech stacks with varied User Interface designs, building a platform that can be quickly customized and integrated with the partner systems as an embedded solution is complex and challenging. Adopting a Cloud Native, Serverless approach offers immense flexibility.
Serverless technology, also known as “function-as-a-service” (FaaS), allows for the execution of individual pieces of code, or “functions,” without the need for provisioning or managing servers. InsurTechs can develop specific ‘functions’ customized for individual distribution partners that allow for a unified experience to be delivered by the partner from the insurer’s SaaS platform. Microservices, containers, and other serverless technologies enable insurers to easily update and maintain their systems and quickly respond to changes in the market.
Next Insurance reported that a fifth of its revenue now comes from embedded products, in addition to Hippo’s report that 50% of its business comes from embedded partnerships. Hippo’s platform is well-architected to easily integrate the Smart Home cover with builders and mortgage providers at scale.
- Secure, scalable APIs for quick integrations and deployment
InsurTech companies need to contend with the constraints of the legacy systems used by the incumbent insurers, that limit the ability to create plug and play solutions and disrupt the digital experience. Further, to derive the best price for a customer, transparent access to Fast Data (distinct from Big Data) from all partners is vital. However, every entity needs to ensure that their respective customer identity and privacy is protected in this process.
Secure, scalable APIs are core to addressing these conflicting yet necessary requirements. APIs are ideal for sharing data and services as they are agnostic of the underlying service. They can be tracked, encrypted, and monitored, and once developed, require minimal changes for use in new integrations. The services of the underlying Serverless platform can now be offered as APIs, whether for internal use, to partners, or directly for customers.
Rally Health’s well-defined API suite integrates 4 products offered by the insurTech and seamlessly connects employees with the corresponding health network offered by their respective companies. Likewise, Stride Health is an insurance recommendation platform for independent workers in partnership with Fiverr, an online marketplace for freelancers.
- Well-defined Data sharing model for quality risk assessment and user privacy protection
Big data is structured and unstructured data generated by the business daily and is characterized by the “3 V’s”: volume, variety, and velocity. Data sources include social media, IoT, and from regular business transactions. Fast data is a subset of essential big data and is processed quickly, is always updated, and available for use in applications such as fraud detection, real-time personalization, and real-time decision making.
A sample Fast Data solution would employ Apache Kafka or Google Cloud Dataflow for data collection in real-time, process and transform the data using Apache Storm and store the processed data in an AWS S3 or Cassandra distributed NoSQL database. Using an Event-driven architecture coupled with an open-source data stream processor like Flink, the resultant analysis can be rendered in dashboards like Tableau or offered as a service via APIs.
This is an evolving space and presents a market opportunity for InsurTechs to offer Fast Data-As-A-Service. The startup should offer a data platform where anonymized data from multiple sources and multiple entities is captured, structured, and mapped to virtual identities and is continuously updated based on event triggers. There are little or no references offering a significant first-mover advantages and high barriers to entry thereafter.
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